Page 51 - FINAL CFA I SLIDES JUNE 2019 DAY 8
P. 51
Session Unit 8:
30. Income Taxes, p.259
Example: Analyzing deferred tax item disclosures, p.259: WCCO, Inc.’s income tax expense has consistently
been larger than taxes payable over the last 3 years. WCCO disclosed in the footnotes to its 20X5 financials the
major items recorded as DTA and DTL (in millions of dollars), as shown in the following table.
Based on the table: Why has income tax expense
exceeded taxes payable over the last 3 years?
tanties
- $33 m
Because DTL has been growing faster than DTA!
Based on the table: What is the effect of the change in
the valuation allowance on WCCO’s earnings for 20X5.
Management decreased the valuation allowance
by $33 million in 20X5.
This is like reducing accumulated depreciation…
This resulted in a reduction in deferred income tax
expense and an increase in reported earnings for
20X5.
